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UBS Charged In Auction-Rate Wrongdoing

UBS AG is facing charges for promoting auction-rate securities as conservative, money-market funds at a time when the auction-rate market was plummeting.

New York Attorney General Andrew Cuomo alleges that UBS is responsible for repurchasing $25 billion in auction-rate securities from its investors rather than the mere $3.5 billion it is currently offering to buy back, according to a July 24, article.  Although UBS claims it has not committed any illegal activity and does not have a deceptive, nationwide campaign to reduce their $11 billion auction-rate debt, it acknowledges that some of its individual employees are being evaluated for disciplinary action.

This case highlights the ongoing problems brokers and investors are encountering with auction-rate securities. Many investors had bought auction-rate securities with the understanding that they were holding safe, liquid investments, only to see the market collapse in February and leave them with substantial losses.

Other state regulators are also investigating the offers and sales of auction-rate securities. Massachusetts Secretary of State William Galvin is investigating UBS, Bank of America, and Merrill Lynch. In addition, the SEC and FINRA are cracking down on banks that are being suspected of advertising auction-rate securities as liquid funds to investors.

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